The FTC Soda Wars

T he Federal Trade Commission’s new probe into the pricing practices of Coke and Pepsi is the latest step in the agency’s march away from protecting consumers.

U.S. competition law has for more than 40 years rightly centered on the welfare of consumers. As interpreted by the FTC and in the courts, antitrust action must be triggered by monopoly-inflated prices, a lack of innovation, or some other harm to consumers. Competitor complaints do not an antitrust suit make.

But in a U-turn in the Left’s decades-long war on sugary sodas, the FTC is alleging that Coke and Pepsi prices are too high. Diabetes and obesity be damned, they’ve got price controls to instate.

Putting aside the soda health issue, FTC commissioner Alvaro Bedoya asserted a direct correlation between big-box retailers and people on an Indian reservation in South Dakota who are paying higher prices for their groceries and are not “able to buy fruit for their kids.” Weeks later, Politico reported the FTC’s investigation into Coke’s and Pepsi’s alleged price discrimination when they sell to large retailers, such as Walmart.

To do so, the FTC is pulling the Robinson-Patman Act out of long-term storage. The act was passed in 1936 and imposed a general prohibition on selling “commodities of like grade and quality” to different buyers at different prices.

Back then, the Great Atlantic & Pacific Tea Company (A&P) was the nation’s largest retailer. It revolutionized the way Americans purchased groceries — for the better. A leading scholar on A&P, Marc Levinson, summarizes the connection between scale and consumer benefit in his book on the chain store:

Their basic strategy was so extraordinarily simple it could be captured in a single word: volume. If the company kept its costs down and its prices low, more shoppers would come through its doors, producing more profit than if it kept prices high.

Thanks to chains such as A&P, Americans paid less for their groceries and enjoyed greater variety and nutrition.

All of this benefit to consumers came with a great deal of disruption and pain for the 585,980 food stores and the 13,618 wholesale distributors of groceries spread across America around 1930. And in the populist political environment of the era, that pain first led to punitive taxes on grocery chains, as Levinson records. It then took the form of the Robinson-Patman Act.

The law stripped food chains of their ability to obtain lower prices from sellers and, in turn, to pass those savings along as lower prices to customers. As former FTC chairman Tim Muris and former FTC general counsel Jonathan Nuechterlein explained in a 2018 research paper, “the ultimate victims of the Act were the millions of ordinary consumers forced to pay higher prices for food and other necessities.”

As U.S. antitrust law evolved, starting in the late 1970s, through the use of economic analysis and the new consumer-welfare standard, Robinson-Patman was largely abandoned by regulators and courts. But today’s FTC longs for a return to the days of heavy-handed regulation that Americans suffered in the 1930s. Sadly, we can expect the same dismal results for consumers associated with the Robinson-Patman Act in its heyday if it is invoked again to prosecute Coke, Pepsi, or any of the large retailers to whom they sell. That might be good news for smaller sellers, but it’ll mean higher prices for American consumers.

In fact, forcing a uniform price on everyone will hit some of the poorest consumers hardest. According to Department of Agriculture statistics, the vast majority of food-stamp purchases are made at large retailers; more than half at big-box stores. Poor citizens who are able to access the advantages of these retailers shouldn’t have to pay more in the name of equity.

The theoretical argument that sellers charge less to big-volume buyers because they cannot afford to not have their products on the shelves of Walmart or Target is just that: theoretical. It’s just as likely that there are actual, significant but hard-to-quantify advantages to selling on a large scale. Those might include credit risk, credit collection, warehousing, the risks inherent in advance buying, and other transaction costs.

And, even if Coke and Pepsi are forced to charge one price to all buyers, what incentive would soda manufacturers have to lower prices for independent grocers? Wouldn’t the economic incentive instead be to raise the price for all buyers, to the extent that price elasticity allowed?

Using the Robinson-Patman Act to raise everyone’s prices will not provide the help that poor Americans need.